The economic news last week was better than expected. Housing starts were stronger than expected, while both the New York Empire State Index and the Philadelphia Fed Index reported encouraging news on manufacturing. Also a positive was the Weekly Initial Jobless Claims report that fell by 13,000 in the latest week to 348,000. To cap that off, retail sales rose in January by 0.4%, which was the largest gain since October.
The general rule of thumb is strong economic news often causes money to flow out of bonds and into stocks, as investors leverage their money to take advantage of gains. This is partially what caused bonds to worsen late last week. Also affecting bonds and home mortgage rates was the news that inflation is on the rise. This was evident by the Consumer Price Index (CPI), which rose to highest levels since October 2008. Any mention of inflation in this market tends to worry bond investors, causing bonds and home mortgage rates to worsen, as inflation can reduce the value of fixed investments such as bonds.
The bottom line here is rates, though increasing slightly from last week, are still near all-time lows, which makes it a great time to purchase a home.
The capital markets are closed Monday due to President’s Day and the economic calendar is moderate for the rest of the week.
On Wednesday Existing Home Sales report will be released, followed by the New Home Sales report on Friday. It will be interesting to see if positive news continues in light of the housing starts data from last week.
Don’t forget strong economic news tends to cause money to flow out of bonds into stocks as investors look to take advantage of gains. This tends to cause bonds and mortgage bonds, to which home mortgage rates are tied, to worsen. Let’s see if this trend will continue.